TY  - JOUR
AU  - Desai,Mihir A.
AU  - Dharmapala,Dhammika
TI  - Taxes and Portfolio Choice: Evidence from JGTRRA's Treatment of International Dividends 
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13281
PY  - 2007
Y2  - July 2007
UR  - http://www.nber.org/papers/w13281
L1  - http://www.nber.org/papers/w13281.pdf
N1  - Author contact info:
Mihir A. Desai
Graduate School of Business Administration
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6693
Fax: 617/496-6592
E-Mail: mdesai@hbs.edu

Dhammika Dharmapala
University of Illinois College of Law
504 E. Pennsylvania Avenue
Champaign, IL 61820
E-Mail: dharmap@illinois.edu
AB  - This paper investigates how taxes influence portfolio choices by exploring the response to the distinctive treatment of foreign dividends in the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA).  JGTRRA lowered the dividend tax rate to 15% for American equities and extended this tax relief only to foreign corporations from a subset of countries. This paper uses a difference-in-difference analysis that compares US equity holdings in affected and unaffected countries. The international investment responses to JGTRRA were substantial and imply an elasticity of asset holdings with respect to taxes of -1.6.  This effect cannot be explained by several potential alternative hypotheses, including differential changes to the preferences of American investors, differential changes in investment opportunities, differential time trends in investment or changed tax evasion behavior.
ER  -